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Alan Hevesi yesterday was dealt a major blow by the city’s Campaign Finance Board, which withheld $2 million in matching funds from his mayoral campaign until he resolves billing questions involving his political consultant, Hank Morris.

The board’s decision to hold Hevesi’s money – while awarding a combined $6.34 million to his three Democratic rivals – prompted Morris to threaten legal action against the board.

“We’re in the process of retaining a leading litigation firm in America,” Morris told reporters following a contentious meeting with the board.

The crux of the complicated dispute between Hevesi and the board involves whether Morris’ firm can charge Hevesi for its services while Morris provides his own services to the campaign for free.

The board also is trying to determine whether Morris’ company has been undercharging Hevesi – as some of his rivals have charged – a finding that could lead to a large fine against the city comptroller’s campaign.

Financially, the board’s decision to delay awarding the $2 million to Hevesi for at least two weeks will not seriously impact his campaign because it already has more than enough cash to reach the $5.5 million spending cap for the Sept. 11 primary.

But politically, the board’s decision may be disastrous if Hevesi’s campaign becomes distracted by a major court battle or questions over whether he’s breaking the rules of the city’s campaign-finance system.

During his hourlong appearance in front of the board, Morris – sometimes angrily – pressed his case that he’s allowed to work free for Hevesi.

At one point, Morris snapped at the board: “Is your purpose to delay here and embarrass the Hevesi campaign?”

In other campaign news:

* Peter Vallone spent the day in the north Bronx, campaigning with Councilwoman Madeline Provenzano.

* Mark Green called for abolishing the 32 local school boards, calling them a “noble experiment that has failed.”

* Fernando Ferrer unveiled his health-care policies, calling for more funding for medical services for the poor. He would pay for the program by taking $1 billion in capital funds that had been dedicated to building jail cells over the next 10 years.